Closing Bell - Closing Bell: Market selloff intensifies, CEA Chair on “unacceptable” inflation 5/11/22

Episode Date: May 11, 2022

Stocks logged another losing session, with the Nasdaq shedding more than 3% and the Dow falling more than 300 points, reversing an earlier rally. Ben Emons from Medley and Peter Cecchini from Axonic look for ways to protect your portfolio. Meantime, the latest read on inflation topped estimates once again – with prices rising 8.3% versus last year. Council of Economic Advisers Chair Cecilia Rouse calls inflation “unacceptably high,” and outlines the White House plan to fight it. And ARK analyst Simon Barnett breaks down opportunities in health care, as Cathie Wood’s ETFs feel more pain in the selloff.

Another failed rally attempt on Wall Street today. Stocks mostly lower as we head into the close, with the Nasdaq feeling the most pain, down about 2.5%. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Here's where we stand right now in the markets. Another intense day of selling for technology in particular. There's the Nasdaq in the middle, down 2.5%. The S&P broader, down 1%. Right now, you do have some pockets of strength in today's market. Energy, utilities, materials, real estate and consumer staples are all higher, but everybody else is down. Consumer discretionary at the bottom of the pack today. The Dow is down

about half a percent. It was up four hundred twenty three points at the highs of the day. Again, another down, up and fade day down one seventy six right now. Check out some of the most actively listed names right now, right here at the New York Stock Exchange. Roblox, which had an epic turnaround, initially sinking on results, now higher and off the highs. NIO continues to be among the most actively traded. Palantir continues to give back 6.5% today after earnings a few days ago. Ford and AMC, which is down almost 13 percent. It had earnings yesterday. Remember, a milder sell off on that news coming up on today's show. The White House reacting to yet

another hot inflation print. We'll talk to the Council of Economic Advisors chair, Cecilia Rouse, her first take on today's CPI number. Plus, the pain just keeps coming for Cathie Wood's ARC Innovation Fund. it's now down 60% on the year. We'll talk to ARK analyst Simon Barrett, who Cathie Wood herself called one of the most brilliant analysts in the healthcare space. He likes a lot of the genomic stocks, which have been hit hard this year. We'll begin with Apple, though, because it's under significant pressure and dragging down the whole NASDAQ. Christina Partsenevelos with the latest from the NASDAQ market site. Christina. Well, let's start with the fact that maybe a 75 basis point Fed hike is back on the table, given April's inflation numbers. That's a sentiment from Jeffries. The not so great,

although not terrible report, I stole that line from Mike Santoli, is weighing on high growth stocks, which is what we're seeing here at the Nasdaq, swinging into the red, down over 2.5%, led by Apple because it's heavily weighted here. Already Apple trading below its mid-March low. Less than $150 close would be something we haven't seen since mid-November 2021. Other big weights bringing down the Nasdaq, of course, you've got the usuals, Microsoft as well as Meta. But I want to focus on Tesla for a second, down as well. Musk, Elon Musk, spoke yesterday at a Financial Times event and tried to convince everyone in the crowd that the Twitter deal would

not jeopardize Tesla's focus. He won't have to sell much of his personal stake or be stretched too thin, or that's what he's trying to convince everyone. The biggest percent movers to the downside right now on the Nasdaq are Unprofitable Lucid and then some cloud stocks like Zscaler and CrowdStrike. You can see CrowdStrike dropping over 8%. And I end on a bright spot. Electronic Arts, after recent earnings trending higher and ending its partnership with FIFA, much to the dismay of a lot of fans out there, EA is up 10%.

Constellation Energy up 1%. Fortnite up 1%. And Booking Holdings, almost 2.5%. Sarah? Yeah, so bright spot in that video game space now with Roblox and EA. Christina, thank you. Christina Pertzenevelos,

for more on today's choppy market action, let's bring in Ben Emmons from Medley Global Advisors and Axonix's Peter Cecchini. Ben, Apple was the stalwart. It was the one of the big mega cap stocks that have been acting best and holding up better than the rest. Is today's move a sign of something that it's actually sliding harder now?

Hi, Sarah. Yeah, there's certainly a risk on a risk of sentiment building, including around these type of behemoth stocks. And I think, again, if you take the CPI data at face value, it's not really moderating the way you would like to see. So the bond market continues to slowly pull forward more rate hikes for this year to get the Fed funds rate up more than 2 percent, probably close to 3 percent. And then you get stocks like Apple get hit because it's such a crowded stock and because it's actually a really good company. But really, it's the environment that we're in of having to go to restrictive policy by the Federal Reserve. Is that what's going on here, Peter, do you think? Because it is notable that the 10-year yield is actually lower today.

There's buying of bonds, which typically doesn't happen on these bets, that the Fed is going to have to be more aggressive. Yeah, well, you know, interestingly enough, my view is that 10-year yields were going to be capped because of what we're seeing here, which is that when equities sell off, normally speaking, and in the absence of a Fed taper, you would have a flight of capital into safety. And we saw that in 2018, in fact. And I think we're going to get a very similar dynamic on a go-forward basis, which is to say the Fed is actually not going to get to 3 percent, which is the 2023 terminal rate that most big banks are talking about, precisely because equities, and I do believe as well the real economy, are going to see the tightening that happens because of equities themselves. And that equity market tightening is going to do most of the Fed's work

for it, which is going to force it to pivot, especially if we get an inversion of the yield curve. For example, if the Fed gets to 2 percent in the 10 year, is that one and a half percent, that inverted yield curve is going to send a very strong signal to the Fed that it needs to slow the pace of hikes. So I don't think today's CPI print changed very much at all. Fed's going to go 50. And at some point, Fed is going to realize it was late to the party and it's going to have to leave early. Well, so if that's the case, Peter, then then there would be more growth concerns out there, which which may be factoring in. And then wouldn't you want to own big cap tech like an Apple or a Tesla, which which are growth stocks that typically do well in low growth environments? Well, Sarah, I think at a certain point you're going to want to buy a lot of these things.

I just think we're, you know, 10 to 15 percent too early on the indices. PEs still need to adjust. You know, we're at 21 times very aggressive forward earnings. Forward earnings, earnings for next year are going to suffer. We are going to see a growth slowdown. And typically, you know, equity markets overdo it to the upside and they overdo it to the downside. So our view here is that we have a little bit more pain in the indices. As you know, I think it's a sell the rally market. And Ben, give us an update on where you are, because you had liked a lot of the reopening plays like the airlines, but that's not working anymore with all these growth concerns globally and, of course, with higher rates. It's still an offensive play, I think, Sarah. But, you know,

to your point, like you're getting at some point airfares this high with energy prices continue to be an upward pressure that demand will start to wane. You know, there's actually capacity being cut around airlines globally now because I guess not enough personnel, not enough airplanes available. So at some point consumers will pare back. But I think if you look at the S&P Airline Index is outperforming the S&P Index 15%, 1.5% year to date, I think that still shows us that the reopening play is still here. But we have to keep in mind that there too, financial conditions will ultimately catch up with airlines

and reopening stocks and that you see tightening there. As Peter says, it's about the domestic economy slowing down to get inflation under control. That is domestic financial conditions. So airlines will be affected eventually. Yeah, they're down today again. Thank you both for joining us on this Market Binance. Peter Cecchini. Up next, we will talk much more about the inflation situation in America.

Get the White House plans to fight it when we are joined by the Council of Economic Advisors Chair Cecilia Rouse. You're watching Closing Bell on CNBC. Dow's down about 170 points right now. It's really the Nasdaq that's looking at the most pain, down 2.7%. We'll be right back. Check out today's stealth mover. It's Duke Realty, the industrial warehouse REIT, one of the best performers right now in the S&P 500

after rejecting a nearly $24 billion all-stock buyout offer from rival Prologis, calling the offer insufficient. Warehouse demand has been booming in recent years amid a huge shift to e-commerce. And we've got a bonus stealth mover for you, courtesy of Mike Santoli, who insisted Wendy's shares of the fast food chain getting hit hard after the company missed Wall Street profit and revenue estimates due to higher commodities and labor costs. The stock is

down 11 percent. It's lost about a third of its value just in the last three months. And speaking of fast food, we've got a developing story here on McDonald's. Kate Rogers with the details. Kate, what's going on? Hey, Sarah. So we got a look at this new 60 page grading system called Operations Pace, which stands for performance and customer excellence that McDonald's is rolling out in 2023 with training starting this summer. It notes that its business climate is changing in this 60 page overview of the system and says it needs a new approach that supports achieving our growth plan objectives. Now, the program has frustrated some franchisees. It calls for between six and 10 visits a year from company and third party assessors per location. That's layered on top of other inspections for things like local food safety regulations. Now, some

franchisee owners that I spoke to are not happy with the changes, which they call less collaborative and harsher in terms of grading from prior iterations. Now, we spoke to two owners with decades of experience that said that their concerns are over hiring and retention in this environment, not actually with the grading itself. In a statement to CNBC, McDonald's said, quote, we must remain laser focused on maintaining our world famous standards of excellence in our restaurants. So if you own restaurants, you know, between six and 10 visits a year per location, that's a lot to really keep up with. Obviously, many of these companies, McDonald's, Wendy's, all of them included, are really trying to hang on to workers in this very competitive environment.

And this is just one more thing that they're not happy about rolling out in the next year or so. Yeah, something I'm sure you'll continue to dig into, that friction. Thank you. Kate Rogers, you can read more about that story, by the way, on CNBC.com. Lays it all out. Let's go back to the broader markets. In the red again today, Nasdaq seeing the steepest decline. It's down more than 2.5% right now, 2.7%. This comes after April's inflation report. Came in this morning hotter than expected, 8.3%, fueled by price gains across the services sector. That's

what worried economists in particular. Joining us now in a first on CNBC interview, Council of Economic Advisors Chair Cecilia Rouse. Chair Rouse, good to have you back on the show. Welcome. Thank you. It's nice to be here. So I'm curious how you at the White House are reading this inflation report

because the headline number suggests maybe a little moderation like we peaked. But if you go through the internals like the core and the services, it doesn't look that way. Well, that's right. We're we're pleased to see that headline inflation and core inflation seem to have moderated this past month. But we recognize that inflation is unacceptably high. I will also emphasize that we don't put stock in any one month. But we know that even core inflation, which

accelerated month on month, on average, it was pretty close to where it's been over several months. It just accelerated from the last month. But look, we understand that inflation is unacceptably high. That is why the president is laser focused on this. He understands the challenge that rising costs have for families, such as families of his own. Addressing inflation is first and foremost the purview of the Fed, which has the dual mandate of price stability and full employment. We're pleased to see the nominees that have been confirmed. We need to get them all confirmed, and they know they have a tough job ahead. But the president is doing what he can as well, which is why he laid out in his speech yesterday that he's got a plan to address

energy prices, to lower costs, everyday costs for families, to reduce the deficit. And he contrasts that with Republicans that really don't have a plan that's workable for working families. No, I think the criticism, you know, politically as it relates to the economics, Chair Rouse, is that, I mean, no question, he's made it a priority. He said it's a top domestic priority, as it should be, but often blames other factors, which is fair, the pandemic, the supply chain issues out of China, the war in Ukraine, but doesn't take responsibility, for instance, for the massive fiscal stimulus we saw, like that $2 trillion spending bill poured on top of an already pretty hot economy.

So, look, let's go back a year, actually more than a year, when the president took office and we had 20 million people on unemployment insurance benefits. We had just been through a month where we lost jobs, job growth over the prior three months. It had been about 50,000, 60,000 jobs a month. We had a pandemic where we didn't know how long it was going to last. We didn't know how effective the vaccines were going to be, whether it would reduce transmission, whether we could get shots into arms.

The American Rescue Plan got shots into arms. It provided the support for the vaccine rollout, for tests, for masks, for therapeutics. It provided support for households and businesses and for state and local governments. It provided support for households and businesses and for state and local governments. It was an insurance policy. And yes, it supported our economy through the last year and a half. It generated the growth we had last year, which puts us in a good place where we have some resilience for dealing with these additional headwinds. But look, we understand

that demand is high. Supply has not kept up with demand and inflation is unacceptably high. Yeah, no. And we could go back and forth. It's old history at this point on whether we needed the bump up in unemployment benefits and the stimulus checks. But you did mention that it's the first and foremost goal of the Fed, which we know, and they've started to raise interest rates and just recently did a double. But I mean, I'm looking at the market again, Chair Rouse, down 3 percent on the Nasdaq, which is now 30 percent off the highs. The S&P 500 is almost 20 percent off the highs. Are you concerned about the market reaction as the Fed has to adjust its policy and deal with this, changing the national mood and sentiment for consumers? Again, the Fed has a

difficult job. There's a lot of uncertainty. The pandemic is not quite over. We have Russia's invasion of Ukraine. We've got China's response to the latest wave of COVID with their shutdowns. It looks like they're still managing to move shipments around in different ports to manage through their COVID policy. But we're anticipating that that may have some impact on supply chains going forward. So we understand that there are headwinds and that the market is reacting to that. The president is focused on policies that generate sustainable economic growth, that help to increase our economic capacity. That's with our bipartisan infrastructure law

and the investments there is by lowering the cost for families and prescriptions, child care. Let's talk about child care. Part of the way that we get through this and for addressing some of the inflation and services is by increasing labor supply. We know that in order to do that, one, we need for people to really feel that we're past this pandemic. The COVID package that is before Congress, it's really important. We need the additional resources to deal with future variants. In addition, investments such as in child care that allow families to balance work and family so they can get back to work are going to be very critical. So we know there's work to do. The president has put forth policies to help us generate this kind of growth, which is fundamentally what he's focused on. I think the labor force is a

good point, but there are some questions about some of the objectives here to fight inflation prescription drugs, for instance. That's not really a hot spot right now of inflation. That's just a long term political goal, isn't it? They're not growing more than two and a half percent. So, look, these are costs that American families are wrestling with. You're right. It's not part of inflation, which is the rate of change in prices.

But these are costs that families have to wrestle with every day. And they take a bite out of the family budget. And we know that those costs have been increasing faster than inflation over the last several decades. So the president's plan is focused on helping families have a little bit more breathing room, as he likes to put it, to help them manage these everyday costs, which we know are so important, so that they can have a sustainable budget, a sustainable living for their families. What about on food prices in particular, Chair Rouse? That was another really hot area of the report today. 10.8 percent jump in grocery prices, food at home for Americans that they're feeling every day. And that was a step up from what we saw about 10% in March. How do you deal

with this? I know we can't, you know, we can't plant more wheat in Ukraine with a war going on and the Fed certainly can't do anything about it. So what is the response? So the president is Illinois today to try to work with our farmers to see what we can do in ways that we can increase production here at home. So, for example, he's proposing to increase the kind of insurance that farmers can receive to do something they know is known as double cropping, which can be risky. So providing insurance for farmers to go ahead and plant wheat right after soybeans

so that we can increase that kind of production. He is also focused on ensuring that farmers have access to the best technology so that they can deal with some of the increase in food prices is due to the energy. So these advanced technologies in terms of farming can help reduce their use of fertilizers. So the president is also trying to address the food prices by seeing what we can do here at home. We've got a vibrant agricultural sector. And if we can increase production, that will help with world food prices as well. Where do you think CPI is in a year from now? Well, that is, you know, it's a tough call. There's a lot of uncertainty, but forecasters really do expect that prices will moderate over the coming year. So I expect it to be lower,

but, you know, it's not necessarily going to be linear. We can't just focus month to month, and we understand there are headwinds, but I do think it will be lower than it is today. Cecilia Rouse, thank you for joining us with the White House response to today's report. Show you where we are in the markets right now. Down about 170 points. It's faring better than the Nasdaq, for instance, which is down 2.8 percent. A lot of the mega cap tech stocks are getting absolutely slammed and dragged into the selling in a harder way today. We're talking Apple, Microsoft and Tesla.

That's at the bottom of the triple Qs. The S&P 500 down 1 percent. Again, energy is doing well today. Some of the other groups as well, but not communication services and not consumer discretionary. They're at the bottom of the pack. Up next, Mike Santoli,

here to break down the pain in the tech trade. Separates quality from crud. We'll explain in today's dashboard. We'll be right back. More former pandemic winners plunging today on quarterly results. Look at Unity Software and Coinbase down 30, 40 percent after reporting revenue that missed expectations. This follows Upstart. Remember Holdings yesterday's nosedive on disappointing results and Teladocs last week.

Mike Santoli taking a closer look at the recent carnage in some of the tech names. Are these the names that you call crud officially? Well, we can call them what we like. That's a polite name for how they behaved. Absolutely. Look, I think in general, almost no area of the growth universe has been spared this deep pullback. But there's been separation. And what you were mentioning earlier, Sarah, with Apple and Amazon kind of catching down to the downside shows that maybe this gap has to close a little bit more. So here's quality growth. It's an ETF. It's about 40 percent tech, not all tech, but it's basically a little more fundamentally sound, larger cap growth as against this future tech ETF,

which very much tracks the non-profitable tech sector and things like that. This is an 18 month chart. So it shows you that's been the downside leadership. And the big question to me is if we're going to have a rerun of what we saw after the 2000 tech bubble peak, which was the junkie stocks got slammed or were down 80, 90 percent, but even the best ones had deeper pullbacks. Take a look at Microsoft and Alphabet relative to the cloud software ETF. It's a very similar story. Again, over 18 months, those stocks are holding their value. They arguably look much cheaper than they did back then. I don't think they were nearly as overvalued this time around in 21 as they were down in 2000.

But this is what we're talking about now, Sarah. The market's attempting to make these distinctions, and we'll see if it can continue to do so. It was thought that a lot of these pandemic winners would be secular winners, too. So it's very disappointing, I'm sure. Just not hundreds of them. And there were hundreds of them that were valued as if they would be. All right, Mike, thank you. I'll see you in the market zone. Speaking of, ARK Innovation Fund getting crushed again today. It's now down 60 percent this year.

Teladoc, of course, is one of ARK's largest holdings. CEO Kathy Wood doubling down on her stake in that company after its post-earning sell-off. Remember that two weeks ago? Wood saying on CNBC investors are missing out on a very undervalued stock and touting Arkzone Genomics analyst for that analysis. Simon Barnett, who is one of the most brilliant analysts out there in this space. Well, Simon will join us next to defend his bullish call on Teladoc and a few of these other names which are under pressure again today. We'll be right back. Check out shares of Cathie Wood's ARK Innovation and ARK Genomics ETFs. They're both in the red today, pretty sharply, adding to steep losses, both down about 70 percent from their 52-week highs. Joining us now is ARK Invest analyst Simon Barnett. Simon, it's good to have you on the show. What would you tell investors? Why should they stick with ARK and these strategies when they're doing so poorly?

Right. So what we like to tell our investors right now is to focus on our life science strategy, like you mentioned, which is built around the long-term underwriting of companies that are uniquely combining biology, artificial intelligence, automation, and other sciences to extend and enhance life. So these companies can be focused on things like diagnostic testing, life science instruments, creating new medicines, or even healthcare infrastructure, for example. And so while we're still pouring over the same earnings calls that everyone else is during this time of year, I think a major benefit of having that five-year-plus time horizon is that it frees us up to spend a lot of time with the underlying science. And that informs how we do our financial modeling. And, you know, again,

like I bring people back to the time horizon because, you know, in the healthcare space, you can't cure a disease or launch a new groundbreaking diagnostic test every quarter. So it's vital to have that perspective. Right. I mean, it all sounds good, except for these ETFs have just been trading on momentum. And the problem is

now, and you mentioned the time horizon, a lot of these companies don't have anything tangible in terms of FDA approvals or actual revenues and results. And those valuations got inflated over the last few years, but it given all back and then some now because investors have no patience and no tolerance for those kind of future ideas. So it's just not working. Right. I think that is

actually kind of a misperception that people have around our life science strategy. So if you break it apart and go back to some of those different companies and sectors that I mentioned, many companies in the portfolio are generating revenue, right? So the diagnostics and tools companies are continuing to scale really well. In fact, a lot of them have been growing before the pandemic, accelerated throughout it, and are continuing to scale. And so, again, many of these do have FBA-approved assets. So if I get into some more specifics here, large testing providers, companies like Invitae, Exact Sciences, as well as companies we don't have in the fund like Natera, as well as these sort of associated picks and shovels plays, some that people might be familiar with are like Illumina or Twist.

These are all companies that have reiterated or raised their annual guidance for the year at growth rates that are far superior to GDP, right? So think in the 20, 30 or 40 percent ranges and steadily accelerating throughout the year. And we think that these rates are going to continue to stabilize and, like I said, accelerate. What about Teladoc? Got to hit that one because it's one of the worst. And I know you guys have been doubling down. It's sort of like the Peloton of the healthcare world in that it was a great pandemic winner, a great pioneer in what it did. And now there are some serious questions about what the future looks like and what the barriers to entry are. What is the case for Teladoc? Where does it go next? So I think that a lot of people may have had their first experience

with virtual care during the pandemic. I mean, if you look at the utilization rates that we had before the pandemic versus now, they're almost 40 times higher now than they were two years ago. And that's a roughly stable level. So I think a lot of people's first introduction to the name might have been that experience. And obviously, you know, we've been following it for much longer than that. So if I kind of set some context, and I'm happy to kind of dive into the investment case. At these levels back in 2018, the company had one sixth of the

visit volume, half of its paid members, one fifth of its annual revenue run rate, and it's cash flow negative. Now, one in six Americans is a full paid Teladoc member. The company is cash flow positive. You know, they've increased their EBITDA since 2019 by 650 percent in real dollars and doubled it as a percentage of revenue. And this adds to, you know, the roughly 900 million that they have on their balance sheet to be nimble and flexible. I mean, to your point, this market is evolving very, very quickly. So we view that profitability as a real strength and asset for the company moving forward. Now, to focus on the investment case,

we are not as fixated on its direct-to-consumer channels, right? So you can think of it as an evolution that's already been taken. Well, because there's competition there. Right. There's competition there. It's a lot easier to start a company and go direct to consumer,

much more difficult to go business to business. And so we've thought about Teladoc as a company that is transitioning from direct to consumer to something that looks a lot more like a B2B enterprise partner. So some examples of how we track that and how we want people to be looking at the company is don't look necessarily at the increased members, right? I mentioned they've, you know, several, you know, tens of millions of new people on the platform over the past few years. But when you look at things like, you know, utilization rates up 160% since the pandemic, the number of multi-product, meaning, you know, whole person integration of in-person, virtual, right? That's another misconception people have is that

it's Zoom for doctors. Absolutely not. This is a company that has integrated with the hospital all the way into the surgical suite, right? So it's something that is continuing to kind of work with the system, not something that's trying to usurp it or make it, you know, a lot more different. And the last thing I'll say on that is, you know, again, utilization rates, multi-product going from 67 to 78 percent over the past two years. And we're also hearing a lot more about really competitive wins that the company is having, like taking away the Northwell Health account. This is the largest health care system in the state of New York. That was upset over an incumbent because of the fact that they have integrated so deeply and leveraged that data science at scale to really improve outcomes.

Simon, we have to leave it there. Thank you for joining us to talk through some of these beaten down names and the funds. We appreciate it. Simon Barnett. Thanks a lot. Here's where we stand right now in the markets heading into a breakdown. 257. So the sell-off has picked up steam here in the last few moments, down 1.3% on the S&P 500.

Just to give you a sense of what's getting hit the hardest, it's still technology and consumer discretionary. Names like Tesla and Apple and Microsoft, energy, utilities and materials. Those are the three that are staying positive right now. The Nasdaq down 2.87%. It's meant to maintain a $1 peg to the U.S. dollar, but a controversial stable coin plunged below 30 cents earlier today. It's having a ripple effect across the whole crypto complex. We'll explain why straight ahead. What is Wall Street buzzing about today? Stable coins, the Terra USD coin, meant to maintain a $1 peg to the US dollar, but it's in freefall today. Kate Rooney

taking a look at the impact that's having. Kate, there have been other instances of not so stable stablecoins. Yeah, absolutely, Zara. It's not every day we're talking about a big move in a stablecoin. These are meant to be pegged to the price of a dollar. But one of those stablecoins, TerraUSD, dropped to a low of around 23 cents. Investors are comparing this to a run on a bank, with traders losing confidence and heading for the door in the last couple of days. A cryptocurrency related to that other coin I mentioned called Luna, the Luna token, also crashing overnight, wiping about $22 billion from its market cap in just a week. And the company behind all of this, the Luna Foundation and its founder,

have been scrambling to restore confidence and bring that stablecoin back to a dollar value. The Terra stablecoin is also backed by cryptocurrencies, we should note, like Bitcoin instead of dollars, like some other versions of that same theory, stablecoins. It is unraveling. And that's hitting sentiment in crypto markets. Investors I'm talking to say this is arguably the biggest black eye yet for this industry and it could result in more regulation. Quick notes here, there have been some rumors and theories about Citadel, among others, coordinating this crash. A spokesperson from Citadel telling CNBC that's not the case, that it is a rumor and they have no exposure to UST. Back to you. Got it. Kate, thank you. Kate Rooney. Up next, the head of the National Retail Federation and

a top retail analyst weigh in on what the latest hot inflation print means for the sector, which is a big underperformer today. Retail, that story, plus a countdown to earnings from Disney and Rivian. When we take you inside the market zone, Dow is down 263 points. We'll be right back. We are now in the closing bell market zone. Sorry about that delay. CNBC Senior Markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus our Julia Boorstin on what to expect from Disney earnings after the bell and National Retail Federation CEO Matt Shea and Telsey Advisory CEO Dana Telsey on how inflation is impacting the retail stocks. We'll kick it off with the broader market though because

we're losing steam again here into the close led lower by by the Nasdaq, which is now at a session low. The Nasdaq is down about 30 percent from its all time high. Mike, these morning rallies just are not lasting. The S&P is now down four and a half percent for the week. What is going on as you monitor whether stocks can actually stage a bounce and then what happens later in the day? What's mostly going on is just this kind of rolling liquidation. It's a grind lower. It's basically people not trusting rallies and the rallies are being given an even shorter and shorter leash as we go. Remember, toward the end of last year's upward grind, almost any dip would be bought. You wouldn't wait for it to get to 2 percent. Now we're in the opposite zone. It's

risk reduction across the board. We don't know exactly where it's coming from, why it's happening this week. But clearly, there are people who are too overexposed to the hardest hit parts of this market in crypto, in tech. And it's if you own what they own or something else that they happen to own that's blown up, that's what is going down today. Now, the equal weighted S&P is not really suffering that much. The overall S&P hit a down 18 percent number from the peak. So a lot of damage has done. I don't think this is really any kind of aggressive, urgent rush for the exits.

It's much more about nobody feels like the market's going to run away from them on the upside. It's certainly, you know, primed to bounce before too long. But people are basically skeptical of any rallies at this point. Again, the magnitude of these moves of some of these stocks is pretty tremendous. Tesla's down to 10% today, for instance. Despite rising inflation, consumer spending actually remains solid. That's according to the latest research from Bank of America. So how much of an impact does inflation have on these retail stocks?

Joining us now is Dana Telsey of Telsey Advisory Group and Matthew Shea, CEO of National Retail Federation. Matt, is the consumer still in good shape? Well, Sarah, we think so. And that's certainly what we're seeing, all the indicators that we've seen. You had the chart up in an earlier segment showing consumer spending across a whole wide range of categories. We've been out in the market last week, several thousand shoppers talking to them constantly. Last week, talking to them specifically about inflation and the overwhelming number of them more than two-thirds think that it's the government as the source of the problem here

that's often the answer the people give about problems in this case it's probably true uh in terms of what's driving demand well i think the view is and these are pretty sophisticated we dive down and ask a little more the question more deeply we say what is the cause and i think they recognize that the excess demand is being driven by all the money that's out in the marketplace and and they've got specific policy prescriptions to to drive inflation so um you know i don't i don't think it's it's worth spending a lot of time trying to understand the source of the inflation, but it is important as we understand the policy prescriptions.

We certainly see it as demand-driven, not supply chain-driven inflation. And so as we think about the right kinds of solutions going forward, we need solutions. Obviously, the Federal Reserve is going to do what it does that's going to impact demand. But how do we really help consumers and especially those at the lower incomes? That needs to be part of the prescription for policy solutions going forward. Yeah, Dana, the news that what Matt just said and the Bank of America spending data looks like the consumer is holding up remarkably well, given these inflationary forces, 10.8 percent jump in food prices at home in April. But you wouldn't know it from the retail stocks.

Some of these names, I'm looking at PVH, VF Corp, Tapestry, 50% off the recent highs. So where's the disconnect coming from? I think overall every company is impacted by inflation as it affects every single input cost, along with the increase in gas prices, increase in raw materials costs. There is no magic bullet. It can't be avoided. And I think pricing power is the key. Exactly like you said, Sarah, these stocks, when you look at the S&P indices, I mean, you have consumer discretionary, which is off in excess of 27 percent, while you look at staples, which is hanging in much better. I think it's pricing power that's going to make the difference. And until we see stability in the top line, that is what everyone is looking for.

It's almost as if the whites of the company's eyes need to be shown in terms of if it does stop, what's the sales levels going to look like? So what are your top two favorites right now, given you've got a lot to pick from with some of the recent damage? I'm about pricing power. Who has margins? Who has pricing power to help offset some of this inflation and combat it? I look at Estee Lauder. I look at Ulta. I look at Lululemon and LVMH. I want to be in luxury where the margins are there. Matt, what about online retail? Etsy is down again, another 8%. This stock has been slammed so much. The pandemic darlings, even Amazon, losing a bulk of its pandemic gains. What happens to those stocks as people have shifted back to in-store? And there are questions about just how

much growth lies ahead. Well, Sarah, one of the things that we certainly saw over the course of the last year, in 2021 in particular, was that growth in online sales was matched by growth in stores. So people were really back out there in stores. The 14 percent growth we saw last year in retail sales on an annualized basis in 2021 was divided pretty evenly between the online side and the bricks and mortar side. And so certainly the companies that have gotten much more sophisticated about the way in which they combine those experiences for consumers, how they use the stores to do fulfillment, how they use the stores to create engagement opportunities, how they use online to drive foot traffic and vice versa. I think those companies, and you know some of them, and we've got thousands of members and every big name you mentioned is a member. So we love them all. I

can't pick stocks the way you and Dana can. But I would say in terms of those that are going to be winners and losers, the sophisticated operators that move seamlessly between online and using the store, I think they've got a lot of opportunity. Well, yeah, no, that's a helpful color. Matt, Dana, thank you. We'll leave it there. Appreciate it. Matt Shay, Dana Telsey. Wanna hit the video game stocks

because we are near session lows on the major averages, but these stocks continue to shine brightly today after a trio of earnings. Electronic Arts is the best performer in the S&P right now, despite weaker than expected revenue. Rival Take-Two rallying in those results as well. And then there's Roblox staging a comeback after, despite weaker than expected revenue. Rival take two, rallying in those results as well. And then there's Roblox staging a comeback after reporting a wider than expected loss and sales miss. Shares of Unity, however, are plunging on a very weak Q2 in full year guidance.

Steve Kovach joins us. Steve, what happened between last night and this morning to reverse the Roblox shares and boost this whole group? Yeah, that's right, Sarah. It's the earnings call. Really positive comments from the CEO and CFO on the earnings call about how they want to monetize these Roblox users that they've gained during the pandemic. They're really adamant about the fact that, look, growth may be slowing down, but we've retained all these users that we gained during the pandemic. We have 54 million people playing every single day. Now we're going to start ramping up our advertising plans. We're going to start ramping up the kinds of digital items we sell. And so these monetization efforts really remind me of like when we heard Facebook talking

way back in 2009 or 2010. We're not making any money. We're losing money. But we have tons of people on our service, on our platform. And now we're going to turn the dial and start monetizing them. So that's what really stuck out to me and to investors, it seems like. And also that the pandemic comps are going to get easier, Sarah, because they've kind of lapped themselves on this cycle of hyper growth they had during the pandemic. So comps are going to look a little bit better moving forward through the rest of the summer. So I just wonder, Steve, if what you're saying is they're distinguishing themselves here, this group of video game stocks,

pandemic winners that actually are able to maintain the growth because we've seen so many instances and we've talked about a few of them, Teladoc and Peloton. Right. And Unity even,

where it's fallen apart. Right. You got to keep in mind these are sticky games. These are sticky experiences they're going after. And they're also, it's not apart right you got to keep in mind these these these are sticky games these are sticky experiences they're they're going after and they're also it's not just kids they're they're what it's called aging up they're getting more and more people on roblox not just nine to 12 year olds they're getting teenagers and early 20s and then in ea's instance not only did that upgrade

help uh today boost the shares uh they gave a launch date for this mobile game called Apex Legends. Now, that's been on PCs and consoles for a while. And the idea that it's coming to mobile is going to really juice revenue there. It's a super popular game and expected to do really well for EA. Steve Kovacs. Steve, thank you. Investors are anxiously awaiting a new set of earnings. Disney is coming after the bell. We'll be specifically interested in new details there about its streaming service, of course, following Netflix's subscriber loss. Julia Boorstin joins us. Julia, what should we be watching in terms of Disney streaming trends and metrics? Well, Sarah, the big question is whether Disney's streaming business is on track

to hit its 2024 targets or whether the company is concerned about a contraction and a further contraction, which is what Netflix is predicting. Now, the number to watch for Disney is 5 million. That's how many Disney Plus subscribers analysts are looking for the company to add on average. Disney's overall earnings per share are expected to grow 50 percent, while revenue is projected to grow 28 percent. That growth driven by a rebound in the parks. Now, commentary about the parks, bookings for the usually busy summer season and spending trends will be very much in focus and seen as an indicator of consumer confidence in light of inflation and other recessionary pressures. Sarah.

Julia, thank you. Julia Borstein on Disney. Rivian's the other big name we're going to watch on the earnings calendar after the bell. The stock continues to get crushed. It's now down 70 percent from its IPO back in November. Bill Abojo joins us. Phil, the stock's been hammered. What would reassure investors? Some reassuring numbers in terms of what guidance they give. Three things we're going to be looking for when you look at the results from Rivian, Sarah. First of all, what's going to be happening when it comes to cash burn? They're burning about a million or a billion, I should say, per quarter. That's the expectation. The reservation level, last time we heard from them, it was about 83,000 reservations. And then what's the production rate? 25,000 is what the last guidance was. If they don't change any of that, if they stick to 25,000,

that might provide a little bit of relief to investors. But all the EV stocks are getting hammered right now, Sarah. Yeah, including Tesla, down 10%. Phil, thank you. Rivian after the bell. Mike, I'm just looking at the continued deterioration here in the final minutes. It's been an unfortunate pattern for the bulls here as the market, the winners start to fade. We've still got a few groups positive, but not as many. Energy, for instance, remains in positive territory with utilities and barely materials. Everything else down and just another drubbing for these tech stocks.

Yeah, basically the biggest names, the trillion dollar club, is coming under a lot of pressure today. So you've had Apple in particular really lose this support it had for a while, kind of maintaining this somewhat this upper range stock had traded in. You know, arguably, it's a good thing if investors sort of give up and feel like there's no place to hide. Ultimately, that can work to the benefit of the overall market or at least trying to have some kind of culmination of this process. So the breadth of the market is negative, but not as bad as you might think, given what you're seeing happen at the headline index level you've got about a two to one uh negative

to uh positive uh volume on the day so clearly there's some stuff up there's almost a thousand new york stock exchange shares up but the heavyweights are having uh their toll take a look at a one-year chart of apple to get a picture of how we've kind of succumbed below uh what was thought to be support up in the 150s that's been an issue for a of how we've kind of succumbed below what was thought to be support up in the 150s. That's been an issue for a while. So you're kind of losing that. Amazon basically unwinding all the pandemic gains. So, you know, the nowhere to hide kind of sentiment is probably something that has to be a phase we go through here. If you look at the volatility index, very, very conspicuous. It's down on the day or at least flattish right now.

It's been very unresponsive to the incremental new lows being made in the S&P 500. People are very hedged up or people are resigned to the fact that we're just in this slow slide lower. Perhaps we do need another spike in there to say that maybe we're going to get a final flush. I keep mentioning these targets in the 3,800 to 3,900 range for the S&P. I think that's in a lot of people's minds that that might be where some buyers reside. We're in the $3,900s right now, Sarah. It is a little counterintuitive to see the fear gauge, the VIX, move down as stocks sell off. Mike, thank you.

As we head into the bells, look at the Dow. It tells a story down $344, just about session lows. Microsoft, Home Depot, and Apple, the biggest drag there. The S&P 500 is now down one and three quarters percent, which means for the week already heading into Thursday, it's down about four and a half percent. Energy and utility is the only sectors that are higher into the close. Consumer discretionary tech and communication services lower. That is why the Nasdaq is down three and a quarter percent right now. Yes, it's a lot of the mega caps. Apple, Microsoft, Tesla, Amazon, NVIDIA, and Facebook weighing the most heavily on the triple Qs. There goes the bell with a decline of more than three percent again here for the NASDAQ. That does it for me.